Copyright ©2000, South-Western College Publishing International Economics By Robert J. Carbaugh 7th Edition Chapter 6: Non-tariff trade barriers

Carbaugh, Chap. 6 2 Import quotas  Quotas are a restriction on the quantity of a good that may be imported in any one period (usually below free-trade levels)  Global quotas restrict the total quantity of an import, regardless of origin  Selective quotas restrict the quantity of a good coming from a particular country Types of non-tariff barriers

Carbaugh, Chap. 6 3 Import quota: trade & welfare effects Price ($) S US S EU S US+Q a b cd D US Types of non-tariff barriers Quota

Carbaugh, Chap. 6 4 Effects of a quota on sugar imports Price of raw sugar (cents/lb.) S US SWSW S W+T a b c d D US Types of non-tariff barriers Quota Quota premium Duty Quantity of raw sugar per year (mill. short tons)

Carbaugh, Chap. 6 5 Comparing tariffs and quotas Price ($) S US 0 Types of non-tariff barriers SJ1SJ1 SJ0SJ0 D US 1 D US 0 Price ($) S US 0 SJ0SJ0 D US 1 D US 0 Tariff restrictionQuota restriction

Carbaugh, Chap. 6 6 Tariff-rate quota  The tariff-rate quota is a two-tiered tariff  A specified number of goods (up to the quota limit) may be imported at one (lower) tariff rate, while imports in excess of the quota face a higher tariff rate Types of non-tariff barriers

Carbaugh, Chap. 6 7 Tariff-rate quota: trade & welfare effects Price ($) S US S W+10% a b c d D US Types of non-tariff barriers SWSW S W+20% g fe

Carbaugh, Chap. 6 8 Orderly marketing agreements  Market sharing pact signed by trading partners  Intended to protect less efficient domestic producers  Usually involve voluntary export restraints, or export quotas Types of non-tariff barriers

Carbaugh, Chap. 6 9 Effects of a voluntary export quota Price ($) S US Types of non-tariff barriers SGSG SJSJ D US Japanese export quota S US+Q i a h b j cd k ef l g Price ($) S US SGSG SJSJ D US Japanese export quota with German imports S US+Q+N i a h b j cd k ef l g

Carbaugh, Chap Domestic content requirements  Rules that require a certain percentage of a product’s total value to be produced domestically  Often has the effect of forcing lower-priced imports to include higher-cost domestic components or be assembled in a higher- cost domestic market Types of non-tariff barriers

Carbaugh, Chap Domestic content: trade & welfare effects Price ($) a b c d DADA Types of non-tariff barriers SJSJ STST

Carbaugh, Chap Subsidies  Domestic subsidy  Payments made to import-competing producers to raise the price they receive above the market price  Export subsidy  Payments and incentives offered to export producers intended to raise the volume of exports Types of non-tariff barriers

Carbaugh, Chap Subsidies: trade & welfare effects Price ($) S US 0 SWSW a b D US Types of non-tariff barriers Subsidy S US 1 Domestic subsidy

Carbaugh, Chap Subsidies: trade & welfare effects Price ($) SJ0SJ0 E F D US Types of non-tariff barriers Subsidy SJ1SJ1 Export subsidy G

Carbaugh, Chap Dumping  The practice of selling a product at a lower price in export markets than at home (or exporting at prices below production cost)  Sporadic dumping - to clear unwanted inventories or cope with excess capacity  Predatory dumping - to undermine foreign competitors  Persistent dumping - reaping greater profits by engaging in price discrimination Types of non-tariff barriers

Carbaugh, Chap Other NTBs  Government procurement policies  Social regulations (health, environmental and safety rules can also restrict trade)  Sea transport and freight restrictions Types of non-tariff barriers